Regulatory Updates

Economic Impact of NIGC's Proposed Class II Gaming Regulations

Norm DesRosiers
Norm DesRosiers

Norm DesRosiers, Vice Chairman
National Indian Gaming Commission

Without going into a great deal of historical detail, the National Indian Gaming Commission (NIGC) has been in the process of developing regulations for Class II electronic bingo systems for nearly four years. The first regulations, including a revised definition of “electronic or electromechanical facsimile” and game classification regulations were published as proposed rules in May of 2006. Subsequently the NIGC commissioned an economic impact study conducted by Dr. Alan Meister of the Analysis Group, Inc.

As a result of extensive public comment from tribes, operators and manufacturers, coupled with the results of the economic impact study at that time, the NIGC withdrew the proposed regulations in February 2007. The NIGC decided as well to approach the task more all encompassing, focusing on the entire electronic bingo system collectively as opposed to its major components.

With the valuable assistance of two Tribal Advisory Committees (one for technical specifications and the other for minimum internal controls) and input from a working group consisting of representatives from operators, manufacturers and designers of games, the NIGC started over. After a herculean effort by those involved, technical specification regulations and minimum internal control standards (MICS) were written in a fashion that had consensus in nearly all aspects. Simultaneously, NIGC staff was consistently revising game classification regulations resulting in a product significantly different and less restrictive than those originally proposed.

In October 2007 the above referenced regulations along with a modified proposed definition change for electronic facsimile were published. In concert with this effort, the Analysis Group, Inc. was contracted to do an updated economic impact study on the newly proposed regulations. This updated study is the subject of much current discussion and putting it in context is the aim of the balance of this commentary.

Dr. Meister clearly points out in his executive summary that he was commissioned to do a “ of the potential economic impact of the proposed Class II regulations…” It is important to note that the study sets forth numerous potential “scenarios” with wide ranges of “estimated” potential economic impact, expressed in “estimated” ranges of low, medium, and high or worst case revenue losses and costs, and estimated tribal member jobs lost.

It is unfortunate that critics of those proposed Class II regulations have focused on the worst case potential “scenarios” and lost revenue estimates. It is also unfortunate that these extreme worst cases are seemingly referred to as “certainties” rather than “potentials.”

In truth, actual current events provide a factual basis to conclude that the actual economic impacts will be significantly less than any of the worst case scenarios presented in the study. A summary follows.
The study makes clear that three states, California, Florida, and Oklahoma, account for over 84% of the total of Class II gaming machines in use in the country.

In California there are over 4200 machines operated by six tribes. Four of those six tribes have newly approved compacts that raise the limit the number of Class III machines they may operate. As a result these tribes are eliminating all of their Class II machines and replacing them with Class III devices. A fifth tribe which accounts for approximately 25% of all California Class II machines, happens to be in a market where the revenues from their Class II machines well exceed the state average revenues for Class III machines. One can reasonably conclude that California will experience virtually no negative economic impact should the proposed rules go into effect.

In Florida there are approximately 8,600 Class II machines. One of the tribes which accounts for almost half of those machines has recently compacted for Class III machines. That tribe is rapidly replacing all of its Class II machines with Class III. Despite some Class III revenue sharing with the state, indications are that tribal revenues will actually significantly increase.

Finally, in Oklahoma where compacts now allow the option of Class III machines, the number of Class II machines in play has diminished from over 37,000 machines in 2006 less than 25,000 now (the balance having been replaced with Class III devices.) This migration from Class II to Class III began before the proposed Class II regulations. Indications are that the migration will continue, as confirmed in testimony before the House Resources Committee Field Hearing in Miami, Oklahoma on February 2, 2008. Again, a fair conclusion is this trend will significantly reduce or minimize the economic impact of the proposed Class II regulations in Oklahoma.

In fairness, anyone genuinely interested in the real or likely economic impact of the proposed Class II regulations should thoroughly familiarize themselves with the entire study published by Dr. Meister. That in depth analysis should be done with consideration of the context of the entire document and the above referenced facts and current events. If so done, it is believed that you will conclude the most reasonably likely economic impact is far different from the worst possible case scenarios being touted as the real economic impacts.

Norm DesRosiers is Vice Chairman of the NIGC. He can be reached by calling (202) 632-7003 or email